I am 59 years old. I have taken voluntary retirement from my Government job recently. My PF, gratuity and all other retirement money taken together is worth ₹90 lakh approx. I will need 40,000-45,000 per month for my routine expenses. I live in my own house with my wife. I don't have any loan to repay. Which is a better option for me-- SWP in mutual funds or buying an annuity plan from an insurance company for ₹90 lakh? I expect to live for another 25 years. My wife is same age as mine.
--Manu Dua
By Raghvendra Nath, MD, Ladderup Wealth Management
You need ₹40,000-45,000 per month for your regular expenses, which roughly sums to approximately ₹5-5.5 lakh per annum. Given your investment of ₹90 lakh, it would roughly translate into an income of 5-6% p.a. on your investments which is achievable.
However while analysing your options one of the biggest drawbacks of annuity plans is that they are fixed income plans where in you will be getting only fixed annuity pay-outs in accordance with the selected plans, however if there turns out to be a scenario of hyperinflation your annuity would prove useless at the latter part of your life, whereas through a mutual fund investment you don’t run the risk of inflation.
Also if we simply look at the proposition from the point of taxation, SWP from mutual funds is much better placed as compared to the annuity plan as your entire annuity income would be taxable.
Apart from this mutual fund investments would also enable a better liquidity profile which can be adjusted according to your risk and return profile, where as an annuity plan would have lower returns plus the funds are locked in for long time. Thus it is better to invest in mutual fund schemes where by you can monitor your portfolio. Also there is greater probability of capital appreciation when compared to the other option.
It must be noted that though mutual fund investments might sound easy, there are a lot of options and categories one needs to analyse before investing in the same. Since you would be investing for long term of 25 years having a diversified portfolio and a good debt- equity balance is a must. It is advisable that you take the help of an investment advisor while allocating the funds as this would entail that the investment decisions are proper and best suited for your risk preference.
(Views are as expressed by the planner.)
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